Übernerd

This is where I like to pull out my cocktail-party line about how all administrative agencies are unconstitutional (because they simultaneously exercise legislative, judicial, and executive powers).

Hear, hear!

Excellent. That makes complete sense. Thanks!

That was my first thought, but I thought the tables were based on a 35-year average, so even if the wage base didn't change for the last year of that period, wouldn't there have been a change for the first year (i.e., 35 years ago)?

Does anybody know why the IRS hasn't issued the Social Security covered comp tables for 2016 yet? I know the wage base didn't change, but that only affects the end-point of the 35-year average. Typically they issue the tables in a December Revenue Ruling, and we're almost to February. Cheers.

Code Section 401(a)(20) permits a terminating defined benefit plan to distribute benefits to active employees "within one year" of the termination date. If the assets aren't distributed within a year, the plan isn't considered "terminated." If all trust assets are distributed (within a year) through the purchase of a deferred annuity contract, can that annuity contract retain the in-service distribution option, so that active employees can receive distributions beyond the one-year period? I can't find any guidance on this question. Cheers.

Thanks, Andy. My gut has been the latter approach (separate distributions, or rather, distributions of separate benefits, as the LSP is coming from a separate account under the plan).

DB plan allows for bifurcated distributions, i.e., a partial lump sum with the remainder as an annuity. How do you calculate the RMD for such a distribution? Participant has reached required beginning date and wants to roll over as much of the lump sum as possible--but any portion that is attributable to the RMD isn't eligible for rollover. The RMD regs tell you how to calculate the RMD for an annuity or a total lump sum, but not a bifurcated distribution. Cheers.

It appears to be quite broad, though not by statute. The state's supreme court has adopted the "California Rule," which prohibits even prospective reductions in the accrual rate for vested employees (with exceptions not relevant here). It has also extended that rule to plans sponsored by municipalities and other governmental subdivisions. Thanks for the replies, all--they were very helpful.

Thanks, mbozek. My review of the state statutes has turned up nothing on point--i.e., they all concern the state-wide plan. I've done a fair amount of work with the federal-penalty exception to ERISA's anti-assignment rules, but agree that those principles don't apply here.

Thanks, Carol. Ideally, the new rule would apply to this employee, who hasn't begun receiving his benefit; second-best would be for it to apply to employees convicted in the future; third-best only to future accruals. Nothing in the state statutes regarding its state-wide plan applies to Plan X, which is an independent plan sponsored by an instrumentality. So I've been thinking, as you suggest, that it will boil down to a state-law contract issue. FWIW, this state does not have a forfeiture law for its state-wide plan.

This is a new one on me. A state instrumentality ("Employer") sponsors Plan A, its own defined benefit plan (i.e., Plan A is not a state-wide, public plan). Participant X, who has a vested benefit under Plan A, has been arrested for embezzling a large amount of money from Employer. Employer would like to amend the plan prospectively to provide that any participant convicted of a felony against Employer forfeits all employer-provided benefits under the plan. Can it do so? The plan is exempt from ERISA as a governmental plan, so the federal vesting and anti-alienation rules don't apply. Not surprisingly, the state's statutes don't deal directly with this question. (And the statutes governing the state's own pension plan don't apply.) Does this boil down to simple state contract law? Cheers.

I think that's a great idea. I believe the schedule for nonamender failures is straightforward, so the real mystery is what percentage of the MPA practitioners have seen assessed against employers for various operational failures. Here's what the IRM says: 7.11.8.2.2 — Determining Sanction Amount and Correction [Last Revised: 03-07-2014] .... (5) For failures other than nonamender failures, the sanction will be based upon the calculated maximum payment amount (MPA). To calculate the MPA, the specialist will need to determine: a. Which tax years have an open statute of limitations. b. The taxpayer's Form 1120, U.S. Corporate Income Tax Return tax exposure for all years for which the statue of limitations has not expired. c. The highly compensated employees (HCE's) Form 1040, U.S. Individual Income Tax Return tax exposure for all years for which the statue of limitations has not expired. d. The potential liability to the trust if taxes are payable with the Form 1041, U.S. Income Tax Return for Estates and Trusts for all years for which the statue of limitations has not expired.Note: A tax estimation worksheet is located on the shared server in the folder labelled “Closing Agree.” (6) After calculating the MPA, the specialist will submit the following to the closing agreement coordinator: a. The MPA calculations. b. A summary of the pertinent issues. c. Any mitigating factors submitted by the taxpayer. d. Any corrective actions already taken by the taxpayer. (7) The closing agreement coordinator will provide the specialist with a sanction range. The specialist is responsible for the sanction negotiation.

Thanks, that's about what I thought. I've since learned (from the IRS) that they will calculate the MPA but you can do it yourself (subject to their review) if you prefer. I believe there is a "secret schedule" of sanctions--the agent I dealt with on another audit said as much. (I came into that audit after the MPA had been calculated, and it was for a DC plan.)

Is there a resource somewhere on precisely how the MPA would be calculated for a large DB plan? We need to get our arms around the potential exposure. Rev. Proc. 2013-12 lays out the basics, but if you try to drill down there are many ambiguities. E.g., the MPA includes the additional tax if the employer deduction is disallowed for contributions--does that include vested contributions (which are deductible even for a nonqualified plan). How is participant income-inclusion calculated for a plan with hundreds of participants? And does the IRS calculate the MPA, or does it merely review the employer's own calculation? Is the MPA estimated based on the Form 5500 alone, or is there a massive review of other documents? Etc. Thanks for any info.